The One Rule for Picking Winning Biotech Stocks

There’s a lot of noise floating around the markets right now.

We have China and the coronavirus, the massive injection of cash into the Chinese economy, the ongoing comedy that is the primaries, ongoing Brexit concerns, and a just a constant stream of news to keep you dazed and confused.

Fed Chair Jerome Powell has been up on Capitol Hill the past two days being grilled by committee members in what often seems like a contest to see which of our august representatives can ask the dumbest question.

If you have never watched a Fed official testify before Congress, do yourself a favor. The video usually ends up on YouTube and some other sites around the web.

After dinner, get yourself a nice bourbon drink and popcorn and be prepared to be entertained.

Of course, by the end of the show, you’ll be horrified that we somehow allowed these folks to be in charge of our nation’s government and the collective national purse strings.

In the midst of all this, I find that the best way to preserve my sanity is to focus on Spring Training reports from around the Cactus and Grapefruit Leagues and run tests and studies of investing and trading methods, ideas, and strategies.

With all of that noise, I see a lot of ideas come across my desk and I run a lot of tests to see if I can use the idea to make us money.

When one of these strategies passes the battery of tests I put them up against, I share the wildly profitable results with you here at Max Wealth to help you find explosive gains and avoid Wall Street’s endless string of fees and commissions.

Today’s strategy is a simple and profitable approach to one of the most exciting markets in the world…

Where Biotech and Value Meet

While my core philosophy lies somewhere between Ben Graham and Henry Kravis, I try to mot to let my value bent interfere with the testing process.

My style of what I call private equity mindset investing works very well for me and fits my personality like a glove, but I am well aware that mine is not the only approach that works.

I have friends with big houses paid for using price and earnings momentum strategies, and some that live pretty well as a result of futures trading systems based on what is pretty close to rocket science level mathematics.

One sector that I have given a lot of attention to over the years is the biotech sector.

Biotechnology doesn’t lend itself to a value style as the companies that fail are unprofitable and burn cash, and those that succeed tend to trade a high multiple. It is something of a catch-22.

Biotech is the source of incredible medical breakthroughs that can improve and extend life and provide staggering profits for investors.

Along the way, I’ve found a lot of things in biotech investing that simply do not work.

Investing or trading around trial dates turns out to be a coin flip at best.

Tracking R&D spending was a waste of time as well.

Buying clinical-stage biotech IPOs turns out to be a fantastic way to lose enormous amounts of money.

We even tested owning those biotechs with the most PhDs on the board and on staff and found no edge in that at all.

After exhausting nearly every angle imaginable, I did find one approach that easily outperforms the S&P 500 and the biotech indexes.

It turns out that there’s only one rule for picking winning biotech stocks and you can combine it with a simple way to manage the portfolio that doesn’t require an advanced medical or mathematical degree.

Sometimes Simple is Best

The rule is simple. We only buy profitable biotech companies.

When we shrink the universe of biotech companies to just those with positive net income over the past 12 months, the world gets very small.

On average, over the last 20 years, there have only been, on average, 23 biotech’s that generated positive net income at a given point in time.

I tested several other variables to cut the list down to a ten-stock portfolio and found that none of the fundamental variables like price-to-earnings or price-to-sales made much of a difference.

The one variable that identified the highest-performing biotech portfolio came as something of a surprise, as it flies in the face of traditional theory: Owning just the ten largest by market cap profitable biotech’s has beaten both the broader market and biotech indexes for over 20 years now.

Once you have established the initial portfolio, management requires minimal effort.

  • Check your stocks every quarter when the company reports earnings.
  • If the trailing 12 months is still profitable, continue to hold the shares.
  • If it is no longer profitable over the last 12 months, sell it and replace it with the next one on the list.

Don’t expect a lot of trading with this approach.

Two of the companies, Amgen Inc. (NasdaqGS:AMGN) and Incyte Corp. (NasdaqGS:INCY), were in the original portfolio 20 years ago and are still in the portfolio today.

This strategy has you owning the very best biotech companies for a very long time.

Along the way, you can expect them to buy many of their smaller competitors to continue expanding their portfolios of life-changing drugs and treatments.

Today: Learn How to Invest Like a Billionaire, Without Needing Billions

Biotech’s Most Valuable

It would be pretty unsporting of me to dump all this information out there and then not give you the list.

I will give you the ten largest profitable biotech stocks for 2020 with the caveat that you understand that this is a long-term approach to investing, and you will suffer all the bumps and bruises of biotech volatility.

Here are your 10 biotech stocks for 2020 using this approach:


This is a straightforward quantitative approach that doesn’t require constant hovering over your portfolio and can help you on your path to building life-changing wealth.

It won’t be as ugly as owning a bunch of clinical stage biotechs, but after a decade long bull market, you might want to be judicious about picking your entry points.

After lots of rigorous tests and analysis, I did find one additional approach to making money in biotech stocks, but I’ll caution you that it’s only for the most aggressive of investors.

After some debate over keeping it for myself, I decided that I will share that with you.

Keep your eyes on your inbox for it this weekend.

To the Max,

Tim Melvin

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